As Sikorsky proves in CT, states will pay for aerospace jobs

In the world of megadeals that states craft to attract and keep employers, the $220 million in incentives that the Connecticut General Assembly is expected to approve Wednesday for Lockheed Martin to produce Sikorsky’s new helicopter line in Stratford doesn’t crack the top 75 — nor is it the biggest subsidy ever obtained by Lockheed.

The California legislature overwhelmingly voted in 2014 for legislation projected to provide Lockheed with $420 million in tax credits over 15 years, a bid to help bring the state a share of the $55 billion the Air Force expects to spend on its next generation of bombers. California estimated the return on investment at $1.6 billion in state and local revenues.

For all the reasons the Lockheed deal is expected to pass overwhelmingly in Connecticut, as did the larger package in California, aerospace companies rank high nationally as beneficiaries of competitions among the states. Aerospace manufacturing pays well, with spending that ripples through the economy via an extensive supply chain.

From the Sun Belt to the Rust Belt, states pay big to attract and keep aerospace – and a wide range of other companies, from Nike in Oregon to Tesla in Nevada to H&R Block in Missouri. As the New York Times reported in its 2012 series, “United States of Subsidies,” states commit about $80 billion every year in incentives, a mix of loans, grants and tax benefits, with Texas leading the way at $19 billion a year.

According to data compiled by the corporate-watchdog group Good Jobs First, Boeing has received deals worth about $13 billion in the past 13 years: $3.2 billion in 2003 and $8.7 billion in 2013 from Washington state, $900 million from South Carolina in 2009, and $91.7 million from Oklahoma in 2015. Florida approved $471 million for Northrup Grumman in 2014. Alabama lured Airbus with a $158 million package in 2014 after giving $150 million to Boeing in 1997.

mark pazniokas / ctmirror.org

Sikorsky President Dan Schultz and Gov. Dannel P. Malloy.

“The idea of corporate welfare, that just isn’t what this is. That’s a naive view of how competitive the world economy is,” said Joe McGee, the vice president of the Business Council of Fairfield County and a former economic development commissioner during the administration of Gov. Lowell P. Weicker Jr.

Florida, Georgia, South Carolina and Texas all made bids for Lockheed Martin, which purchased Sikorsky in 2015, to produce the CH-53K King Stallion in those states, McGee said. One advantage for Connecticut was the presence of its sprawling factory in Stratford, where production of the Black Hawk is winding down, and its trained workforce.

Connecticut is promising annual grants and tax breaks of about $14 million if the aerospace giant meets goals for hiring, capital investments and purchases from its chain of more than 300 suppliers, for a total of $200 million in incentives. By exceeding hiring goals, the company could earned another $1.9 million annually, up to a maximum of $20 million.

The yardstick for judging the wisdom of incentives should be the return on investment to a state, say legislators and private-sector officials involved in economic development, even if some legislators say it is hard not to resent facing what often comes across as an ultimatum.

House Minority Leader Themis Klarides, R-Derby, said the economic incentives can feel like paying ransom, even when they make economic sense.

McGee said one of the best features of the deal is how tightly the incentives are tied to Sikorsky’s nearly doubling purchases from its network of more than 300 suppliers in Connecticut. The company also is committed to investing in its Stratford plant, where it expects to have two production lines for the CH-53K.

“Just Sikorsky’s expenditures are $96 per dollar that we put in,” Gov. Dannel P. Malloy said Tuesday after addressing members of SAE International, an organization of automotive and aerospace engineers. “That has nothing to do with the supply chain. It’s an unbelievable transaction that we’ve entered into.”

Thomas Prete, the vice president of engineering at Pratt & Whitney, told the international audience that the Malloy administration was instrumental in fashioning a $400 million incentive package that induced the jet-engine maker’s parent, United Technologies Corp. to build a new engineering center in East Hartford and commit to hire 8,000 workers in coming years to replace retiring workers and gear up for an influx of commercial jet engine orders.

“It’s a great time to be in aerospace,” Prete said.

Peter Gioia, an economist and vice president of the Connecticut Business and Industry Association, said Connecticut cannot hope to draw new advanced manufacturing to the state, given the cost of labor, electricity and other expenses in the Northeast, as well as the fiscal challenges the state faces.

“That’s a [expletive] joke,” he said.

Southern states have spent heavily in recent years to attract foreign automakers. Mississippi provided $1.2 billion in aid to Nissan, while Tennessee attracted a Volkswagen plant with $554 million in incentives. Georgia gave $410 million to Kia. Ford, GM and Chrysler all received billions from northern states to retain factories, not always successfully.

But the state can and should compete to keep and grow companies that are here, especially aerospace manufacturers with extensive supply chains, Gioia said.

“You nurture the core,” he said. “Retaining and boosting a marquee manufacturer like Sikorsky will clearly have a positive impact on its Connecticut-based supply chain and larger aerospace industry.”

McGee, who also is co-chairman of the state’s Commission on Economic Competitiveness, said the loss of Sikorsky and its 7,000 jobs would have been devastating. The departure of General Electric, which moved its headquarters from Fairfield to Boston, was a blow to the state, but the bulk of its employees remained in Connecticut as the company spun off its financial services businesses, he said.

“It’s a shame to lose GE, but there is nothing that compares to this,” McGee said. “We have 6,000 former GE employees still here, working in financial services. You lose the helicopter business, it’s gone. There’s no place for those people to go.”

The Big Business of Economic Incentives

From the low-cost South to the high-cost Northeast, every state plays the game.

Filed Under:

Mark, a winner of numerous journalist awards, is the former state politics writer for The Hartford Courant and a former contributing writer for The New York Times. In more than 30 years as a reporter, he has covered some of the most compelling stories in the state, including the impeachment inquiry and resignation of Gov. John G. Rowland in 2004 and the nationally watched Senate race won by Sen. Joseph I. Lieberman as an independent in 2006. Mark is a graduate of Boston University. E-mail him at mpazniokas@ctmirror.org.

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